Download economic integration in sacu : a case study of common currency

ECONOMIC INTEGRATION IN SACU : A CASE STUDY OF COMMON
CURRENCY
Dr. DEBESH BHOWMIK
(International Institute for Development Studies, Kolkata))
JEL- C01,C02,C1,C19,F15,
Key words- trade integration, OCA criteria, Beta and Sigma convergence,
Email- [email protected]
Website – www.dbhowmik.blog.com
www.debeshbhowmik.weebly.com
www.debeshbhowmik.blogspot.com
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P.O.-PRITINAGAR , District- Nadia,West Bengal , India, 741237
Phone - 07602072569
1
ECONOMIC INTEGRATION IN SACU : A CASE STUDY OF COMMON
CURRENCY
Dr. DEBESH BHOWMIK
(International Institute for Development Studies,Kolkata))
JEL- C01,C02,C1,C19,F15,Key words- trade integration, OCA criteria, Beta and Sigma
convergence,
INTRODUCTION
Towards the goal of Organisation of African Unity or one Africa by the Treaty of Abuja in
1991,the economic integration process is marching ahead among the regional blocs in Africa
under the phases of preferential trading arrangements , custom union, common market and
economic union.African Economic Community will be established by 2028 holding six phases of
integration.It is hoped that African countries will benefit from regional integration by designing
integration arrangement suited to their needs and capabilities having the characteristics of (i)
small domestic market , (ii) weak production structure (iii) wide spread conflict and political
instability (iv) slow progress of reform and (v) slow growth etc. Yet,the primary causes for
regional integration in Africa can be traced to the late 1950s and early 1960s when developing
countries faced declining terms of trade with developed countries. The important and successful
regional blocs are COMESA,ECCAS, ECOWAS, CEPGL,SADC,UEMOA ,SACU etc. In this
paper, we are interested to study the feasibility of common currency in the process of economic
integration in SACU.
MACRO FUNDAMENTALS IN SACU
The richest bloc in Africa is the SADC in which SACU is the largest.Actually , it consists of
Botswana, Lesotho,Namibia,South Africa and Swaziland,but monetary integration excluded
Botswana.Hence,our study will also exclude Botswana for explaining the feasibility of a
common currency.Let us first discuss about the macro economic fundamentals towards the path
of economic integration of SACU.In Lesotho,the average real GDP growth rate was 5.89% per
year during 1985-2012, the Namibia’s GDP grew at the rate of 7.011% per year,South African
GDP increased by 6.84% per year and GDP of Swaziland grew at the rate of 6.81% per year
during 1985-2012 respectively.The growth rates of both exports and imports of SACU have been
increasing steadily during 2004-2012 although its trade balance deficit is rising too along with
current account deficits. The international reserves are able to cover 4.5 months of imports in
2012.Note that the NEER and REER of SACU were shown very much stable.Time series data
during 1985-2012 suggests that GDP of Lesotho increased at the rate 5.89% per annum.
Similarly, GDP of Namibia enhanced at the rate of 7.01% per year during the same period.
Again, GDP of South Africa increased at the rate of 6.84% per year during 1985-2012.The GDP
of Swaziland increased at the rate of 6.81% per year during 1985-2012.These growth rates are
too low for trade and monetary integration. The average inflation rate (CPI) of SACU during
1997-01 was 7.3% which dwindled to 5.25% in 2006 but marginally increased to 6.92% in 2007
and lastly dwindled to 5.9% in 2012.The average saving investment gap was 22.42% during
1997-2001 which was decreased to 10.72% in 2006 and 11.90% in 2007 respectively and finally
2
reduced to 5.6% in 2012 which was more favourable for capital formation than before. Although,
it is a positive sign of sustainable development process. But , the growth of money supply could
not brought under control since the average growth rate was 11.25% during 1997-01 , which
increased to 14.55% in 2002, 19.57% in 2006 and 14.65% in 2007 and finally reduced to 8.8% in
2012.The terms of trade is favourable for SACU .
TRADE INTEGRATION IN SACU
SACU covered 66.23% of exports and 58.41% of imports of SADC in 1990 which increased to
69.47% and 72.85% in 2004 and then slightly fell to 61% and 63% in 2005 and finally decreased
to 47.49% and increased to 65.07% respectively in 2011.The value of intra trade ( exports in
million dollar ) of SADC was 1058 million dollar in 1990 which increased to 6007 million
dollar in 2004 and 27153million dollar in 2012 which means SADC’s percentage of total exports
was 3.1% in 1990 that rose to 8.8% in 2004 and 13.13% in 2012.Hence SACU’s intra-trade
covered 44.32% of SADC’s intra trade share in 1995which decreased to 27.81% in 2011. Since
South Africa is the dominant partner of SACU, then it is estimated that South Africa’s exports
share in the world was 0.7% in 1990 which dwindled to 0.5% in 2005which finally increased to
0.525% in 2012 where its world’s imports share was 0.5% in 1990 that had increased to 0.6% in
2005 and lastly rose to 0.719% in 2012.Hence the effect of custom union in SACU is not
promising for acceleration for trade integration. It is noted that SACU’s offer provides duty free
entry for 77% of non SACU imports from SADC members by 2000,and 97% by 2008.South
Africa eliminated all tariffs barriers by 2012 because SADC became free trade zone and custom
union since 2010.It had adopted 13.1% simple average MFN tariff rate in 2011.Every member
has accepted South Africa’s external tariffs and there are no duties in trade between group
members. In SADC, for example, econometric evidence suggests that non-tariff barriers reduce
intra-SADC trade, while increasing exports of non-SADC countries into the community . As a
result, nontariff barriers have created a perverse incentive structure which penalizes instead of
encouraging intra-SADC trade.
SADC comprises 34.2% African trade during 1996-2000 which decreased to 16.1% during 200106 and then marginally rose to 16.4% during 2007-2011.On the other hand the bloc’s world
share of export was 1.11% in 1990 which declined to 0.81 in 2000 and finally stepped up to
1.17% in 2011.But SADC’s world import share was 0.95% in 1990 that reduced to 0.72% in
2000 and then increased to 1.12% in 2011.Moreover, SADC covered 94.6% share of regional
African trade during 1996-2000 which declined to 78.4% in 2007-11.While SACU’s export
share in Africa comprised 53.1% during 1996-2000 which decreased to 25.95% during 20072011 and import share of Africa was 66.72% during 1996-2000 which declined to 42.27% during
2007-2011 respectively. On the contrary, SACU’s world export share was 0.597% in 1995 which
rose to 0.782% in 2012 but its world import share was 0.629% in 1995 that decreased to 0.560%
in 2012 respectively. The log linear regression model suggests that the intra export share of
SACU decreased at the rate of 3.15% per year during 1995-2012 in comparison to 2.68% decline
per year of intra import share during the same period where as SADC’s intra export share grew
at the rate of 9.32% per year and intra import share declined at the rate of 0.83% per year during
1995-2012 respectively. Therefore, both SADC and SACU emphasized on the increment of
world share rather than intra trade shares.This pattern is the barrier of trade integration. In the
following figures, the intra trade shares in export and import of SACU are given.
3
log(% share of intra-trade(export) of SACU)
Fig-1:Trend of SACU’s export share
2.5
2.0
1.5
0.4
1.0
0.2
0.0
-0.2
-0.4
-0.6
96
98
00
02
04
Res idual
06
08
Ac tual
10
Fitted
12
y ear
Source-Author
Fig-2:Trend of SACU’s import share
log(intrade import share of SACU)
2.6
2.4
2.2
0.2
2.0
0.1
1.8
0.0
-0.1
-0.2
-0.3
96
98
00
02
Res idual
04
06
Ac tual
08
10
Fitted
12
y ear
Source-Author
In SACU, the growth rates of exports and imports of Lesotho were 13.84% and 6.12% per year
respectively during 1985-2012.The growth rates of exports and imports of Namibia were
calculated as 9.37% and 8.03% per year in the same period. Again, the growth of exports and
imports of South Africa were 7.02% and 8.55% per year during 1985-2012.And ,lastly, the
growth rates of exports and imports of Swaziland were found as 7.18% and 7.05% per annum
respectively during 1985-2012.Hence,the performance of external trade was favourable to
growth and balance of payments and also to the trade co-operation among the partners and with
other nations. The exports and imports of SACU are plotted in Fig-3 and Fig-4.
4
Fig. No-3:Trends of exports of SACU
y ear
South Afric a
log(export)
600000
500000
400000
300000
200000
100000
N amibia
Sw az iland
Les otho
86 88 90 92 94 96 98 00 02 04 06 08 10 12
X1
X2
X3
X4
Source-Author
Fig. No -4:Trend of imports of SACU
1
14
20
00
00
00
0
100000
80000
60000
40000
So u th Afr ic a
log(import)
20000
N a mib ia
Sw a z ila n d
L e s o th o
85
90
95
00
X1
X2
05
10
X3
X4
y ear
Source-Author
GROWTH AND OPENNESS IN SACU
Globalisation showed mixed impact on the SACU since there is low degree of openness in South
Africa but high in Swaziland and Namibia. Even the GDP and GDP per capita have been falling
in the South Africa. Hence, the degree of openness did not have any positive effect in the SACU.
In Lesotho, the degree of openness has risen 0.0106% per year but one percent change in the
degree of openness induced GDP changes 2.136% per year during 1985-2012.But, this finding
was found significant. In Namibia, openness increased at the rate of 0.589% per year but one
percent increase in degree of openness stepped up GDP to 0.8956% per year during 19902012.It is significant statistically.Also, in South Africa,the degree of openness grew at the rate of
0.013% per year but one percent rise in degree of openness increased GDP by 1.5589% per year
5
during 1985-2012 .It is significant too.In Swaziland, openness grew at the rate of -0.498% per
year yet one percent increase in the degree of openness stepped up the GDP by 1.382% per year.
It was found insignificant.
In SACU, the openness did not allow too much capital inflows ,on the contrary, foreign capital
inflows have insignificant positive relation with the degree of openness whereas it is negative
and significant correlation in Namibia during 1992-2012.Therefore we found that GDP in
Lesotho and Namibia showed positive and significant relation with the capital inflows during
1992-2012, but the relation is positive and insignificant in South Africa and the relation is
negative and insignificant in Swaziland. Hence, the financial sector reform is very weak in the
SACU so that financial openness could not enhance GDP growth uniquely and uniformly in the
region.
Under the globalisation, diversification has important implications on the growth of the economy
since diversification raises the total factor productivity. The diversification process is highly
influenced by investment, per capita income, degree of openness, macro economic policy
variables , governance and the conflict. The test of Ben Hammouda, H and others (2006) on the
effects of diversification and economic growth on 18 African countries identified that the
association between diversification and trade openness, inflation, REER, fiscal deficit, and
conflict were positive and the association between diversification and fixed capital formation,
GDP per capita, industrial production and governance became negative and the regression
between the diversification and growth was found negative during 1981-2000.All these test were
found significant.
TEST OF OCA CRITERIA
Southern African Custom Union (SACU) has planned to circulate common currency since the
union agreed for monetary integration among members through the freely floating exchange rate
mechanism with Rand as the key currency. Although SADC had already launched free trade area
and full custom union in 2000, so that SACU , being a sub-region of SADC may get boosting
for circulating a common currency for them. It may also be a standard model for OAU .
Let us first verify the convergence criteria for the region SACU on interest rate, inflation rate,
debt/GDP ratio and fiscal deficit as percent of GDP. We have collected the data on said variables
for the period of 1985-2012 from the African Development Bank,World Economic Outlook and
UNCTAD.We have tested β and σ convergence hypothesis following Sala-I-Martin (1996).We
first found out the coefficients of the trend line (β ) of the variables during the said period and
then calculated the five year average of the variables of the initial values and lastly determined
the regression equation between the β and the initial values. If the regression coefficient is
negative, then β convergence prevails. In case of discount rate ( interest rate ) of the member of
SACU , we found the equation as,
β = 5.0477-0.5225 x
(2.866)* (-4.001)*
R2= 0.889 , F=16.014* where x= initial value of 5 year average discount rate
This equation states that β convergence prevails in the SACU in the interest rate during 19852012 and this is marginally significant at 10% . The Beta convergence of SACU in interest rates
is shown in the Fig.No- 5 below.
6
Fig.-5: Beta convergence of Interest rate
0
0
5
10
15
20
value of Beta
-1
-2
-3
-4
-5
Interest rate(5 year average)
Source-Author
Now, if we test σ convergence hypothesis , we have found that it was convergent but showed
statistically insignificant(calculating coefficient of variation of the variable and fitted with the
time variable) whose estimated value is given below.
Log(W)=2.448-0.0175t
(5.98)*(0.214)
R2=0.206 ,F=0.52 , *=significant at 10% level and W= coefficient of variation of interest rate
among countries during 1985-2012.It is convergent but insignificant.
The log linear trend line can verify its level of convergence which is plotted below;
Fig-6: Sigma convergence of interest rate
4
log(coefficient of variation)
3
2
1
2
0
1
0
-1
-2
-3
86 88 90 92 94 96 98 00 02 04 06 08 10 12
year
Residual
Actual
Fitted
Source-Author
7
Now, we found the coefficients of trend line of inflation rate of the member countries of SACU
during 1985-2012 and then calculated the regression equation between those values and 5 year
average of the initial values of inflation rates, we will find the estimated equation as follows:
β = -5.776+0.0955 y
(- 0.67) 0.160)
R2= 0.012 , F= 0.004 where y = 5 year average of initial values of inflation rate
This equation confirms that inflation rate in SACU did not satisfy the convergence criteria for
the period of 1985-2012 and it is statistically insignificant. The Beta convergence of inflation
rates of SACU is shown in the following Figure No-7. The linear relation is upward(ie
divergent)
Fig-7:Beta convergence of Inflation rate
-2
-3
Beta
-4
-5
-6
-7
11
12
13
14
15
16
5year average i ni ti al i nfl ati on rates
Source-Author
Now, if we test σ convergence hypothesis for inflation rate in SACU , we have found that it was
also divergent but showed statistically insignificant(calculating coefficient of variation of the
variable and fitted with the time variable) whose estimated value is given below.
Log(Z)=2.814+0.0148t
(11.26)*(0.989)
2
R =0.0362 ,F=0.978 , *=significant at 10% level and Z= coefficient of variation of inflation
rate among countries during 1985-2012.
The log linear trend line can verify its level of divergent which is plotted below;
Fig-8:Sigma convergence of Inflation rate
8
4.5
log(coefficient of variation)
4.0
3.5
3.0
1.5
2.5
1.0
2.0
0.5
1.5
0.0
-0.5
-1.0
-1.5
86 88 90 92 94 96 98 00 02 04 06 08 10 12
y ear
R es idual
Ac tual
Fitted
Source-Author
Likewise , we have estimated the β coefficients of fiscal deficit as percent of GDP of member
countries of SACU during 1985-2012 and then fit it into the initial values of five year average of
fiscal deficit as percent of GDP of said countries. The estimated equation is given below,
β = 2.8929 + 0.4511z
(3.093*) (3.07)*
R2= 0.824 ,F=9.428* where *=significant at 10% level , z = 5 average values of initial FD% of
GDP
The equation proved that there is β convergence for fiscal deficit in SACU for the period of
1985-2012 which is significant. The convergence of fiscal deficits of SACU is plotted in the
Figure No-9, given below.
Fig-9: Beta convergence of fiscal deficit
value of Beta
6
4
2
0
-2
-4
0
5
10
15
Fiscal deficit%GDP(5 year average intial…
Source-Author
Now, if we test σ convergence hypothesis for fiscal deficit in SACU during 1985-2012, we have
found that it was also convergent but showed statistically insignificant(calculating coefficient of
variation of the variable and fitted with the time variable) whose estimated value is given below.
Log(V)=2.814+0.0148t
(11.26)*(0.989)
9
R2=0.0362 ,F=0.978 *=significant at 10% level and V= coefficient of variation of fiscal deficit
as percent of GDP among countries during 1985-2012.
The log linear trend line can verify its level of divergent which is plotted below;
Fig-10: Sigma convergence of fiscal deficit
4000
coefficient of variation
3000
2000
1000
3000
0
2000
1000
0
-1000
86 88 90 92 94 96 98 00 02 04 06 08 10 12
y ear
Res idual
Ac tual
Fitted
Source-Author
And lastly, the convergence of debt GDP ratio during 1985-2012 of the members of SACU was
calculated on the basis of the estimated equation between β coefficients of trend line of debt
GDP ratios and the five year average values of the initial debt GDP ratios of the members. The
regression equation is formulated as follows.
β = -3.47 + 0.00398 N
(-4.27) (3.11)
2
R = 0.906 , F= 0.004 and where N= 5 year average values of initial debt GDP ratios
The estimated equation expressed that the debt convergence is not satisfied its criteria during the
survey period. Also this test is statistically insignificant. We can show that the convergence of
the debt GDP ratio of SACU which is plotted in the Figure No-11below.
Fig-11:Beta convergence of debt GDP
-1
B e ta
-2
-3
-4
-5
20
30
40
50
60
70
5 ye ar a verag e i n i ti a l d e btGDP
Source-Author
10
80
Now, if we test σ convergence hypothesis for the debt GDP in SACU during 1985-2012, we
have found that it was not convergent and showed statistically insignificant (calculating
coefficient of variation of the variable and fitted with the time variable) whose estimated value is
given below.
Log(S)=2.784+0.5639t
(11.38)*(3.826)*
2
R =0.036 ,F=14.64*, *=significant at 10% level and V= coefficient of variation of debt GDP
ratio among countries during 1985-2012.
The log linear trend line can verify its level of divergent which is plotted below;
Fig-12:Sigma convergence of debtGDP
5
log(coefficient of variation)
4
3
2
1
1
0
-1
-2
86 88 90 92 94 96 98 00 02 04 06 08 10 12
year
Residual
Actual
Fitted
Source-Author
Thus, the test of convergence criteria explained that the SACU is not fully prepared to circulate a
common currency in the monetary union immediately but the test showed that the situation is
promising since fiscal deficit and interest rate convergences became significant in Beta
hypothesis, on the other hand , fiscal deficit and debt convergences were significant in Sigma
hypothesis. These are due to deficit in trade balances , deficit in budgets and over consumption in
case of fiscal deficit and over burdened of foreign debt in case of debt divergence during the
survey period. Therefore , compensatory fiscal policy and pro-poor growth policy will be
beneficial to achieve the convergence criteria within the short period. Then fiscal reform may
effective for the target of monetary union.
Now, if we can go further for explaining the shocks that the SACU has been confronting with
during the period of 1985-2012 from the variables of GDP, the capital account balance, growth
rate of money supply, international reserves, foreign direct investment inflows and the nominal
exchange rate etc ,we would find that in course of economic integration especially in the
monetary integration process, the equilibrium did not achieved . The asymmetric shocks of OCA
criteria for SACU in case of capital account balance during 1985-2012 were clearly vivid in the
correlation matrix of the correlation coefficients of regression errors of capital account balance in
SACU members which is shown below.
11
1.0
-0.582205
0.231312
0.637146
-0.582205
0.231312
1.0
-0.28771
-0.28771
1.0
-0.517728 0.210452
0.637146
-0.51728
0.210452
1.0
In the correlation matrix , there are six negative correlation coefficients and the rest are positive
correlation coefficients and hence, the shock is asymmetric.
Now, the correlation coefficients of regression errors of growth rate of money supply of four
countries of SACU members during 2002-2012 verified that monetary policy faced asymmetric
shocks in the growth rate of money supply.The correlation matrix contains 10 plus sign and six
minus sign respectively which is shown below.
1.000000
-0.034288
-0.266121
-0.082464
-0.034288
1.000000
0.777075
0.744007
-0.266121
0.777075
1.000000
0.799604
-0.082464
0.744007
0.799604
1.000000
Again, the correlation coefficients of regression errors of SACU members during 1985-2012
showed that the bloc faced asymmetric shocks in international reserves in which correlation
matrix contains 12 positive coefficients and four negative coefficients that are given below.
1.000000
0.817389
-0.397884
0.591375
0.817389
1.000000
-0.219029
0.610360
-0.397884
-0.219029
1.000000
0.094121
0.591375
0.610360
0.094121
1.000000
In case FDI inflows, the members of SACU have been confronting with asymmetric shocks
during the study period 2002-2012 which was shown in correlation matrix below,
1.000000
0.662224
0.222961
-0.213051
0.662224
1.000000
0.611835
-0.442714
0.222961
0.611835
1.000000
-0.306640
-0.213051
-0.442714
-0.306640
1.000000
On the contrary, the SACU faced symmetrical shocks from the GDP during 1985-2012 among
the members because the correlation coefficients of regression errors of members contain all
positive signs in the correlation matrix which is shown below.
1
0.754690
0.4087559
0.9148060
12
0.754690
1
0.492930
0.578347
0.4087559
0.492930
1
0.308869
0.914806
0.578347
0.308869
1
Lastly, the correlation coefficients of regression errors from the members during 1985-2012 in
case of nominal exchange rate contains all positive but unity in correlation matrix since the
uniform exchange rate exists in all the countries under floating exchange rate mechanism. Hence,
the SACU faced symmetrical shock in the exchange rate policy.
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0 1.0
1.0 1.0
1.0 1.0
1.0 1.0
Thus, external shocks are partly symmetrical and partly asymmetrical , so that, it can be
corrected through strong macro economic policy and tight monetary and fiscal policies etc. The
SACU should be very much careful about the fundamental equilibrium on the balance of
payments problem when in touch with the current and capital account imbalances.
SOME POLICIES AHEAD
To pave the way of success towards the introduction of single currency in the region of SACU,
the following policies are to be implemented gradually step by step consistent with the phases of
African Economic Community.
1) For speedier financial sector reform, it is necessary to i)integrate domestic market into
regional and global financial markets , ii) to sustain growth for financial integration, iii)
to formulate political commitment of financial integration, iv) to achieve macro economic
stability, v) to calculate benefits of capital account convertibility under liberalization, vi)
to set up a regional central bank which will be a part of an African Central Bank, vii) to
reform the payment system, the selected techniques should be followed such as a)Real
Time Gross Settlement System , b) Automated Clearing House, c) ATM/POS switch and
d) Automated Check Processing System.
2) It should pay more attention on the macro economic stability and good governance for
success of diversification efforts which can raise total factor productivity since
diversification process is highly influenced by investment, per capita income, level of
openness, macro economic policy stances, governance, and conflict.
3) For acceleration of integration process in SACU, it is needed to i) identify priority areas
of focus and take them into account when negotiating towards the objective of Abuja
Treaty, ii) to harmonize co-ordination and co-operation for progressive regional
integration, iii) to design the role of institutions which will function structurally, iv) to
provide institutional support in regional policies for integration, v) to combat the political
instability in the region.
4) It is urgently required to determine whether SACU should be a separate monetary union
or it will be under SADC.
5) In no case , SACU will exist in the bloc of COMESA in the integration process since it
would aggravate the overlapping memberships problem.
6) Policy formulations are necessary for tackling lack of coherence and links among sectoral
co-operation programmes and for lack of national co-ordination mechanism.
13
Finally, In January 2012 African Union organized a Summit in Ethiopia with Heads of State
and Government with the theme; “Boosting Intra-Africa Trade” for fast tracking the
establishment of the Continental Free Trade Area (CFTA) and an Action Plan for Boosting IntraAfrican Trade. The Summit declared “requests the AUC, UNECA, AfDB and other relevant
agencies, to take appropriate measures including studies, technical support to RECs and
sensitization of Member States and partners, for the effective implementation of the CFTA Road
Map”.Within this context, the Africa Trade Forum which is a joint initiative of UNECA, AUC
and the AfDB, has been designated as one of the supporting structures and building blocks for
the establishment of the Continental Free Trade Area (CFTA).The Summit formally endorsed a
Framework, Road Map and Architecture for fast tracking the establishment of the CFTA and an
Action Plan for Boosting Intra-African Trade.The forum will agree on specific inputs into the
African Ministerial Conference on Trade to be held later this year. It is also expected to adopt a
Strategic Implementation Framework for the Action Plan on Boosting intra-Africa Trade and
establishment of the CFTA; and strengthen commitment by African member States and trade
constituencies to build effective strategic partnerships for implementation.
CONCLUSION
SACU was established in 1910, making it the world’s oldest surviving customs union and some
40 years senior to Europe’s trade bloc. But despite this head start, intra-African trade links are
pitifully weak. The bulk of the region’s trade is with Europe and America: only 12% is with
other African countries, Governments lack financial resources and skilled personnel for regional
integration. There are poor institutional arrangements at continental, regional and national level
for such action and only limited consultations between those involved. African countries have
been trying to tackle overlapping membership between regional groups however. African Union
heads of state decided in 2006 to halt the creation of new regional economic communities
(RECs) and recognised only the eight existing ones and the efforts at the time to create the
COMESA-EAC-SADC Tripartite. Regional integration requires the participation of government,
civil society, the private sector and development partners at all levels. A number of decisions and
protocols agreed at summits have not been adopted at national level because of inadequate
consultations, a lack of information and other reasons.
The paper concludes that, the region SACU has every possibility to introduce common currency
within a few years although it could not satisfy inflation and debt convergence in Beta criteria
and inflation and interest rate convergence in sigma criteria and it faced asymmetric shocks of
international reserves, capital account balance and the growth rate of money supply during our
study period 1985-2012.It has a very low intra trade as well as international trade shares but it
has the largest share in SADC’s trade where SADC is the biggest bloc in Africa. If the bloc
minimizes the problem of overlapping memberships, complete the trade integration and
monetary integration process speedily and if it succeeds the financial reforms quickly, then
SACU can circulate a common currency very soon to accelerate the feasibility of African
Economic Unity.
………………….
14
Note- SADC(Southern African Development Community)-Angola,Botswana,Dem.Rep.of Congo,Lesotho,Malawi,
Mauritius, Mozambique, Namibia ,Seychelles,South Africa,Swaziland,Tanzania,Zambia,Zimbabwe,;SACU(Southern
African Custom Union)-Botswana, Lesotho,Namibia,South Africa,Swaziland.
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ABSTRACT
ECONOMIC INTEGRATION IN SACU : A CASE STUDY OF COMMON
CURRENCY
Dr. DEBESH BHOWMIK
(International Institute for Development Studies,Kolkata)
JEL- C01,C02,C1,C19,F15,
Key words- trade integration, OCA criteria, Beta and Sigma convergence,
The paper studied that, the region SACU has every possibility to introduce common currency
within a few years although it could not satisfy inflation and debt convergence in Beta criteria
and inflation and interest rate convergence in sigma criteria and it faced asymmetric shocks of
international reserves, capital account balance and the growth rate of money supply during our
study period 1985-2012.It has a very low intra trade shares which are declining as well as
international trade shares but it has the largest share in SADC’s trade where SADC is the biggest
bloc in Africa. If the bloc minimizes the problem of overlapping memberships, complete the
trade integration and monetary integration processes speedily and if it succeeds the financial
reforms quickly, then SACU can circulate a common currency very soon to accelerate the
feasibility of African Economic Unity.
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